Today’s Key Market Drivers: 2nd September 2019
The US Dollar will continue to strengthen as the global economy continues to weaken.
As the global economy weakens the US Dollar is going to strengthen and there is very little Trump and the US Fed can do about it unless the Fed decides to aggressively drop interest rates. I have been reminding you recently that Donald Trump will continue to try and talk the US Dollar lower as he realises other Central Banks lowering interest rates is only going to make the US economy less competitive. Add the China tariffs into the mix and in the coming quarters a high US Dollar and biting China tariffs could have a detrimental impact on the US economy.
Trump took to his Twitter feed on Saturday with his latest attempt at reversing the trend of the greenback. “The Euro is dropping against the Dollar “like crazy,” giving them a big export and manufacturing advantage…and the Fed does NOTHING! Our Dollar is now the strongest in history. Sounds good, doesn’t it? Except to those (manufacturers) that make product for sale outside the U.S.” In another Tweet he said “If the Fed would cut, we would have one of the biggest Stock Market increases in a long time. Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management…and who can really blame them for doing that? Excuses!”
RBA to keep rates on hold but more rate cuts are likely.
The Reserve Bank of Australia is expected to leave the official cash rate on hold at 1% when it meets on Tuesday, however, traders are expecting the likelihood of further rate cuts in coming months. The economy continues to weaken with a horror building approvals number last week, tepid inflation and an unemployment rate that threatens to move back higher. Wednesday will see second-quarter GDP figures for 2019 released which I expect will show the economic growth is continuing to contract. I expect another rate cut from the RBA in October.
The Aussie Dollar has continued to slide lower in August, moving lower with the Chinese Yuan that just continues to sink as trade negotiations between the US and China struggle. The Aussie is a proxy for what is going on with China and even with US and China trade talks beginning once again the market is not buying the fact a trade deal can be reached any time soon.
Euro sinks further as Euro Zone inflation falls and traders’ price in more stimulus from the ECB.
The Euro has continued its decline late last week as more weak economic data was released. This time it was Euro Area inflation figures which backed up economist’s estimates that the ECB will be forced in the month of September to begin another round of stimulus. This means the ECB electronically producing money out of thin air to support the Euro Area so inflation and growth is contained. Europe is soon to be in recession and over the medium to longer-term unless the US Fed switches course and tells the market it’s going to drop rates then any rally on the Euro is going to be used by investment banks and hedge funds as an opportunity to get short.
Canadian GDP smashes estimates less than a week out from the next BOC meeting.
Just days before the next Bank of Canada monthly September statement the Canadian economy has just recorded one of the worlds most stand out 2019 GDP numbers. Data released on Friday showed second-quarter GDP annualised to be 3.7% smashing estimates of 3%. Economists were tipping the BOC to soon join the rest of the world’s largest Central Banks in dropping its official cash rate but with an annual growth number of 3.7%, it would be hard to see the BOC adjusting rates lower in 2019. The current interest rate is 1.75% and the BOC is set to issue its September policy statement on Thursday.
Friday’s stronger than expected GDP number failed to fire the Canadian Dollar higher which did surprise me. Ordinarily, I would have expected the Canadian Dollar to spike by as much as half a cent on the strong GDP number.
US Labor Day will keep volumes light on Monday.
There is no high impacting economic data scheduled for Monday and the US economy is on an extended long weekend, traditionally the last long weekend of summer. The markets will be shut for Labor Day, however, traders will be keeping a very close watch on the Category 5 Hurricane that is looking like smashing into Florida or Georgia in coming days.
Hurricane Dorian has the potential to be one of the biggest Hurricane’s recorded and the damaged bill could be in the tens of billions. The market’s reaction to the Hurricane will depend on how big the repair bill is. It won’t impact the overall US economy but it could dent the market’s confidence for a short period. Fingers crossed no lives are lost and the storm’s intensity reduces dramatically.
If you missed Friday’s Money Exchange.
- What’s dragging down the Aussie, Kiwi and Euro currencies.
- Why the US Dollar will continue to rise as the global economy slows.
- Two Central Banks will report important policy statements this week.
- The market is looking for concrete progress between the US and China on trade.
- The Chinese currency falls the most in one month for 25 years.
Do the right thing even when nobody else is looking.
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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